10-K/APeriod: FY2016

COSTCO WHOLESALE CORP /NEW Annual Report (Amendment), Year Ended Aug 28, 2016

Filed October 21, 2016For Securities:COST

Summary

Costco Wholesale Corporation's 2016 10-K filing highlights a year of modest sales growth, primarily driven by new warehouse openings, while comparable sales remained flat. The company navigated external pressures such as currency fluctuations and declining gasoline prices, which impacted reported sales and margins. Despite these challenges, Costco demonstrated resilience through a 4% increase in membership fee revenue, underscoring the strength of its subscription model. The company also continued its strategic expansion, opening 29 net new warehouses globally. Profitability saw a slight decrease due to the aforementioned factors and investments in information systems modernization and employee compensation, but the core business operations, particularly merchandise, showed underlying strength with a gross margin improvement when excluding gasoline impacts.

Financial Highlights

50 data points
Beta

Revenue

$118.72B

13.3% Gross Margin

Net Income

$2.35B

2.0% Net Margin

EPS (Diluted)

$5.33

Total Assets

$33.16B

Cash & Equivalents

$3.38B

Free Cash Flow

$643.00M

Financial Statements
Beta
Revenue$118.72B
Cost of Revenue$102.90B
Gross Profit$15.82B
SG&A Expenses$12.07B
Operating Income$3.67B
Interest Expense$133.00M
Net Income$2.35B
EPS (Basic)$5.36
EPS (Diluted)$5.33
Shares Outstanding (Basic)438.58M
Shares Outstanding (Diluted)441.26M

Key Highlights

  • 1Net sales increased 2% to $116.1 billion, driven by new warehouse openings, while comparable sales were flat.
  • 2Membership fee revenue grew 4% to $2.6 billion, a key driver of profitability, with high renewal rates of 90% in the U.S. and Canada.
  • 3The company opened 29 net new warehouses in 2016, an increase from 23 in 2015, indicating continued global expansion.
  • 4Gross margin percentage increased by 26 basis points, partly due to the impact of gasoline price deflation on net sales.
  • 5Selling, General, and Administrative (SG&A) expenses as a percentage of net sales increased by 33 basis points, largely due to investments in information systems modernization.
  • 6Net income decreased slightly by 1% to $2.35 billion ($5.33 per diluted share), impacted by currency fluctuations and other factors.
  • 7Costco approved a quarterly cash dividend increase from $0.40 to $0.45 per share in April 2016.

Frequently Asked Questions

Sales growth in fiscal year 2016 was primarily driven by the addition of new warehouses opened in 2015 and 2016. Comparable sales, which track sales from existing warehouses, remained flat, indicating that growth was more reliant on physical expansion than on increased sales at established locations.

Changes in foreign currency exchange rates negatively impacted net sales by approximately $2.7 billion and earnings per share by $0.24. Similarly, a 19% decrease in the average price of gasoline negatively impacted net sales by approximately $2.2 billion. While these factors reduced reported sales figures, they also had mixed effects on gross margin and SG&A expenses.

Costco opened 29 net new warehouses in fiscal year 2016 and planned to open up to 31 new warehouses in fiscal year 2017. Capital expenditures were around $2.65 billion in 2016, with an expectation to spend approximately $2.6 billion to $2.8 billion in fiscal 2017, primarily for new and remodeled warehouses, information systems, and working capital.

Costco's SG&A expenses as a percentage of net sales increased by 33 basis points in 2016. This rise was largely attributed to investments in information systems modernization, including increased depreciation, and higher stock compensation expenses. The company also noted higher payroll and employee benefit costs, such as healthcare, in the U.S.